Grindon Hall Christian School in Sunderland has been placed in special measures by Ofsted following an "inadequate" rating by inspectors.
The inspection took place in November last year, and the report comments on the attitude of children at the school, mentioning "prejudice-based bullying" shown by the pupils.
The report says the school "does not adequately prepare pupils for life in modern Britain", saying they showed a lack of respect for those who belong to different faiths, cultures and communities.
It also says the school does not do enough to tackle bullying and that "discrimination persists through racist or homophobic language."
The Ofsted report says its inadequate rating is because of the school's "failing to give its pupils an acceptable standard of education and the persons responsible for leading, managing or governing the school are not demonstrating the capacity to secure the necessary improvement in the school."
In response to the report, Grindon Hall's Principal has released a statement saying the rating was a "complete shock" to teachers and parents.
Other comments from the report say that children at the school are not progressing at the rate they should be, with the most able children going unchallenged and younger children not being taught at a stage "typical" for their age group.
In his statement, the Principal also says that they have complained against Ofsted and the "negative and hostile" way in which they interviewed the school's children.